The ase for a Strategic Allocation to Gloal isted ......• Fixed Orbit Satellite Operators • Airports • Toll Roads • Ports • Railroads • Health Services Facilities • Educational

REAL ASSETS | GLOBAL LISTED REAL ASSETS TEAM | INVESTMENT INSIGHT | JANUARY 2016

The Case for a Strategic Allocation to Global Listed Infrastructure Securities

AUTHORS

TED BIGMANManaging Director

MATT KINGManaging Director

IntroductionIn recent years, infrastructure has gained an increasingly prominent role in institutional investors’ multi-asset class portfolios due to a number of advantageous investment attributes, including historically attractive risk-adjusted returns, diversification1 benefits from low correlations with other asset classes, an ability to generate current income, and potential protection against inflation. Furthermore, institutional investors have predominantly preferred to access infrastructure investments through private equity-style, unlisted vehicles or by investing directly in the assets themselves, either as co-investors alongside a fund or via outright ownership. This preference is due to an ability to put large sums of capital to work at one time as well as having the benefits of greater control over the assets and less frequent mark-to-market valuations when compared to investments in listed infrastructure securities. While this avenue for infrastructure investment should continue to be attractive for investors, we believe an alternative route to investing in listed infrastructure securities can provide many of the same benefits as investing directly in the core infrastructure markets, with the added potential benefits of greater liquidity, lower fees, and greater geographic, regulatory, and industry diversification. Indeed, as the amount of capital earmarked for private infrastructure vehicles continues to grow and outpaces the assets available for purchase in the direct markets,2 an argument might also be made that investing in listed infrastructure securities allows for a larger investable universe3 while providing

1 Diversification does not eliminate the risk of loss.2 Preqin, Preqin Quarterly Update: Infrastructure, Q3 2015. Current dry powder (committed capital yet to be invested) sits at $115B and is likely to grow as funds in the market are seeking to raise an aggregate $96B.3 We provide a complete analysis of the size the listed market later in the paper in a section titled “Public Markets Investable Universe—A Look at Indices”.

2

INVESTMENT INSIGHT

MORGAN STANLEY INVESTMENT MANAGEMENT | REAL ASSETS

opportunities to take advantage of frequent pricing inefficiencies due to daily mark-to-market pricing and liquidity. Therefore, we believe investing in listed infrastructure securities may offer better potential to achieve compelling returns, relative to private, unlisted infrastructure investments for similar type assets over a long-term time horizon.

What constitutes investing in infrastructure?Infrastructure investing consists of allocating capital to tangible assets (i.e., land and structures) that provide essential services to society and help the economy to function and grow. It is the essential, “mission critical” nature of these assets which makes infrastructure such an attractive investment—as a result of their essentiality, as well as the capital intensity of the assets (infrastructure assets typically require large amounts of upfront capital to build and maintain), infrastructure project companies typically operate in an environment with little demand elasticity over a business cycle, as well as with little competition. As an example, utility services such as providing drinking water or electricity will always be needed regardless of underlying economic demand. Due to the potentially exorbitant cost of re-creating/duplicating a utility-scale network throughout a large urban area, not to mention the political and popular resistance to zoning and siting duplicative water pipes, transmission lines, transformer stations, etc., such infrastructure assets tend to operate in a monopoly market position in the jurisdictions in which they provide services. This combination of demand stability, multi-year capital planning periods, and monopoly market position tends to result in a cash flow profile that is both highly visible and more stable, which is the hallmark of a “core” infrastructure investment. More generally, a summary of the common attributes of infrastructure investments is outlined below.

• Essential to society or the economy

• Long, useful lives

• Monopoly/quasi-monopoly market position or high barriers to entry

• Operate in regulated environment and/or resistance to business cyclicality

• Can produce more stable, predictable cash flows, often linked to inflation

• Are difficult to replicate due to high construction costs and scarcity of resources

While these attributes provide a general characterization, a few nuances should also be mentioned. First, and perhaps intuitively, there is a difference in risk and cash flow predictability between a newly constructed infrastructure asset that has no operating history, called a “greenfield” asset, and one that has been around for decades with a long operating history, deemed a “brownfield” asset. Greenfield assets tend to have higher returns on invested capital commensurate with higher risk, and brownfield assets tend to have lower returns commensurate with lower risk. Consistent with this, the income component of a greenfield asset might initially be lower than that of a brownfield asset, given its higher reinvestment requirements and lower cash flow predictability. Also, return requirements may vary for similar type assets depending on where the assets are domiciled and what legal jurisdictions they operate in. Because many infrastructure assets are provided a regulated return on invested capital by a governmental entity (as a result of operating in a monopoly or quasi-monopoly market position and in order to prevent predatory pricing) or are governed by contract (in the case of a concessionaire or contracted assets), rule of law is a particularly important consideration when investing in infrastructure. Although a broad statement, most infrastructure investors looking for core infrastructure exposure seek brownfield investments in Organization for Economic Co-operation and Development (OECD) markets given the inherent greater level of stability. We believe an allocation through listed infrastructure securities can satisfy investors’ desired exposure and targeted risk-return profile.

Types of InfrastructureIf capital intensity and providing an essential service to the economy and society are two key, common elements tying infrastructure assets together, in what industries and business areas are such assets found? Most assets (and companies, as owners of portfolios of assets) are found in the four industry areas of energy, utilities, communications, and transportation (i.e., “economic infrastructure”), as well as a fifth area referred to as “social infrastructure.” These broad sector categories are summarized in Display 1.

• UTILITIES: Assets within this sector relate predominantly to networks providing electricity, natural gas, or water transportation and storage utility services, as well as select instances of power production. In most instances, the assets are regulated with little to no volume risk and no commodity or power price risk, with the exception of conventional power plants. For purely regulated assets, remuneration is typically provided on a “cost-of-service” basis through which the utility company gets a set return on capital invested, with the rates of return reviewed periodically. Power producers are provided a return based on the volume of power produced and the price of power, which is typically set as a function of the marginal underlying fuel used to produce that power (e.g., coal, natural gas, etc.) in a particular country or region. Although it varies by geographic location, some utility assets have explicit remuneration for inflation, providing an inflation hedge. Most assets operate as natural monopolies given their scale and cost, with power plants again being the exception.

• ENERGY: Within energy, infrastructure assets tend to be found in the “midstream” segment of the value chain. These assets can include long-haul transmission and short-haul distribution and gathering lines for crude oil, natural gas, and natural gas byproducts; storage facilities;

3

THE CASE FOR A STRATEGIC ALLOCATION TO GLOBAL LISTED INFRASTRUCTURE SECURITIES

REAL ASSETS | MORGAN STANLEY INVESTMENT MANAGEMENT

natural gas gathering and processing plants; fractionation facilities which split elements of the natural gas stream into their constituent parts; and other similar type assets. For the most part, these assets are focused on transporting, processing, or storing commodities developed by upstream exploration and production companies, for delivery to downstream customers (e.g., refiners or utilities). Assets tend to be either contracted or regulated, and exposure to commodity prices and volumes varies by asset.

• COMMUNICATIONS: Communications infrastructure assets consist of wireless and broadcast towers, as well as fixed-orbit satellites. Essentially, these assets serve as the backbone for wireless telephony and data, HDTV, and internet services in various geographies. Importantly, wireless and wireline carriers and cable companies, although included in many income-oriented funds, are typically not included in the infrastructure definition, as they provide the actual service and compete with their peers on price. By competing on price, economic returns can be eroded

over time through competition, and as a result these assets are generally excluded from an infrastructure definition. Towers and satellites are generally remunerated on a contracted basis, with carrier customers “renting” space on the assets. Typically, towers and satellites achieve inflation-based or set percentage rent escalators on a per annum basis.

• TRANSPORTATION: These are the physical assets that allow for the transportation of goods and people, and consist of toll roads, airports, seaports, and railroads. Assets are typically regulated or are operated under a long-term concession, whereby an operator has the rights to receive the cash flows from the asset for a set period of time before returning the asset back to the government. Such assets tend to have higher exposure to the economic cycle relative to other infrastructure areas due to exposure to trade and commerce. Most transportation infrastructure assets achieve inflation-plus type pricing (either through regulation or due to market economics).

• SOCIAL INFRASTRUCTURE: Social infrastructure consists of contracts between private parties and the government to build and operate facilities which administer essential services for a set period of time in exchange for a fee. In contrast to economic infrastructure, the end customer/obligor in social infrastructure is the government, so counterparty risk tends to be extremely low. Examples of social infrastructure projects would be the administration of health care facilities (hospitals, clinics), schools, and prisons.

In most instances, assets in all the above categories can be accessed through both the listed and unlisted infrastructure markets. The one area that is less accessible in the listed infrastructure market relative to private is social infrastructure, although this universe is growing with a few recent IPO offerings. One distinct difference between public and private investment in these categories is that by investing in the public markets investors gain exposure to multiple assets at one time as most listed infrastructure companies own portfolios of assets, whereas with private investments the focus is on individual assets.

DISPLAY 1Investment Universe

UTILITIES ENERGY COMMUNICATIONS TRANSPORTATION SOCIAL

• Electricity Transmission & Distribution

• Natural Gas Distribution• Water• Renewables

• Pipeline Companies• Oil & Gas Midstream(Natural Gas Gathering, Processing, Storage, Fractionation, Transportation & Marketing Services)

• Wireless Towers• Fixed Orbit

Satellite Operators

• Airports• Toll Roads• Ports• Railroads

• Health Services Facilities• Educational Facilities• Correctional Facilities

This information reflects the views of the portfolio management team. These views may change without notice as circumstances or market conditions change. All information is provided for informational purposes only.

4

INVESTMENT INSIGHT


The Morgan Stanley Global Listed Real Assets Team DefinitionLooking at a high level, if one were to include all companies and assets in the five broad industry categories described in Display 1 in a definition of infrastructure, the amount of potential investment would be very large. In support of this argument, studies of infrastructure needs estimate spending requirements to surpass $70 trillion USD by 2030.4 Others point to the size of the universe of listed infrastructure securities, where the largest index market capitalization measures the universe at $2.7 trillion.5 While one might view as large an investable universe as possible as attractive, we believe a more narrowly defined universe is both more prudent and desirable for the following reasons. First, certain companies within the broad categories above may be asset-light or may compete on price, thus eroding the essential element of possessing a meaningful barrier to entry to the business such that economic returns on invested capital can be maintained over time. Second, certain assets and companies (as portfolios of assets) may meet the definition of infrastructure from a capital intensity and barrier-to-entry perspective, but may have contract or remuneration structures that introduce meaningful cash flow volatility into an investor’s portfolio, which makes the assets inherently more difficult to value and less dependable from an asset/liability matching or income perspective. The Global Listed Real Assets Team at Morgan Stanley Investment Management believes that beyond the asset definition of infrastructure, most investors in the infrastructure markets are looking for a particular risk/return profile, with cash flow stability being of paramount importance. Given this view, we believe the following exposures should be eliminated from an investor’s definition of infrastructure, even if they fit the industry groupings above.

1. SERVICES COMPANIES/CONSTRUCTION COMPANIES/COMPANIES WITH A LACK OF REAL ASSETS: As opposed to the owners and operators of infrastructure assets, users or builders of such assets that derive cash flows from the services they offer generally compete on price. While some services and construction contracts can last for a considerable time, the remuneration period and capital backlog is quite short relative to asset owners, introducing considerable re-contracting risk. Furthermore, there is little to prevent competitors from bidding on future contracts offered by a company’s existing customers, making the future level of returns highly unpredictable. For pension funds or endowments looking to match inflation-linked liabilities over long periods of time, the unpredictability of the sustainability of the cash flow stream can make such companies inadequate investments. As a result, we believe that such companies are inadequate for long-term infrastructure investors.

2. POWER/COMMODITY PRICE RISK: Despite some energy infrastructure and electricity utility assets meeting an infrastructure definition from a capital intensity and barrier-to-entry perspective, cash flow volatility can be quite significant due to cash flow structures that depend on commodity prices (in addition to volumes, which is a risk inherent in many infrastructure assets). This is most readily observed in power generation assets for utilities, where the price of power is a function of the underlying fuel used to produce that power, and with gathering and processing companies within energy infrastructure, whereby some assets are remunerated on “percentage of proceeds,” “percentage of liquids,” or “keep whole” contract structures, all of which are a function of the price of natural gas and various natural gas liquids (NGLs). We believe most investors looking for core infrastructure exposure benefit from avoiding these types of exposures, instead focusing on the “transportation” areas within energy infrastructure and utilities

(i.e., long and short-haul pipelines, transmission and distribution lines in electricity, storage, and other assets remunerated on a “fee-for-service” or “cost-of-service” basis). The one exception with regard to power generation in utilities is renewable power that is regulated or contracted through a purchase power agreement (PPA). With a PPA or regulated renewable asset, power is sold to the electricity grid at a set price, and with this functions much like a long-haul pipeline or other volume-based, fee-for-service asset where cash flows are solely a function of volumes (i.e., revenue = volume x fixed price).

Within listed infrastructure, it is difficult to entirely eliminate the exposures described above given the fact that listed companies own portfolios of assets; however, we believe an infrastructure definition that generally looks to minimize such exposure is prudent. An important point of distinction here is that we believe it is important for investors to focus on cash flow stability, but we recognize that cash flow stability may not translate to share price stability at all times. While cash flow stability may have some influence on share price volatility, equity market participants can produce share price volatility for certain stocks over the short term, which may in turn create valuation or arbitrage opportunities that an active manager can take advantage of.

As a final point, for core infrastructure investors (in contrast to opportunistic), and again with the goal of reducing cash flow volatility in an investor’s portfolio, we also believe it prudent to have lower levels of exposure to the areas of emerging markets, greenfield infrastructure and more trade-leveraged, cyclical areas like ports. With greenfield emerging markets investments, predictability of volumes and returns on capital can be challenging given little to no operating history and unproven financial regulation. For more cyclical areas like ports, volume predictability

4 OECD, Fostering Investment in Infrastructure, January 2015.5 Please refer to Display 2.

5



can be similarly challenging, and pricing power during recessionary periods can be lost (as a port may have to compete on price to attract volumes).

Public Markets Investable Universe – A Look at IndicesAs mentioned in our introductory remarks and elaborated on previously, the Global Listed Real Assets Team at Morgan Stanley

Investment Management believes that listed infrastructure securities can serve as an adequate proxy for core, private infrastructure exposure, assuming certain filters are applied to broader infrastructure industry categories and assuming a long-term investment approach consistent with the duration of the underlying asset lives of the companies is applied. For those investors looking to utilize a benchmark

in order to gauge performance, while no benchmark is perfect, we believe the Dow Jones Brookfield Global Infrastructure Index (DJBGI Index)6 currently acts as the best proxy for a number of reasons. The Team believes the most meaningful of these reasons is the evaluation of constituents on the basis of a cash flow test, looking at the underlying business segments of each individual company. Other indices

DISPLAY 2

Data as of December 31, 2015

INDEX

DOW JONES BROOKFIELD GLOBAL INFRASTRUCTURE INDEX

S&P GLOBAL INFRASTRUCTURE INDEX

MSCI ACWI INFRASTRUCTURE INDEX

MACQUARIE GLOBAL INFRASTRUCTURE 100 INDEX

FTSE GLOBAL CORE INFRASTRUCTURE 50/50 INDEX

Components 95 75 260 100 218

Market Cap (Free-Float Adjusted)

$712B $880B $2,747B $1,273B $1,502B

Selection Criteria Pure-play approach that evaluates cash flows of companies (Infrastructure operations must account for greater than 70%).

Stocks are clustered across three sectors (combination of GICS sectors). 15 stocks come from Energy with their weight capped at 20%. 30 each come from Transportation and Utilities, with their total weights capped at 40% each.

Infrastructure companies that fall into one of five groups (combination of GICS sectors): Telecommunications, Utilities, Energy, Transportation, and Social.

Based on revenue analysis by Macquarie (over 50% must come from infrastructure operations).

Stocks are grouped across three sectors (combination of ICB subsectors): 50% from Utilities, 30% from Transportation, and 20% from Other.

Focus Pure-play core infrastructure

Broad-based infrastructure exposure

Broad-based infrastructure exposure and related businesses

100 largest constituents and heavily weighted towards Utilities

Broad-based, Utilities-centric exposure

Regional Exposure Americas: 59.4% EMEA: 26.4% Asia: 8.6% Australia: 5.6%

Americas: 43.9% EMEA: 34.6% Asia: 10.8% Australia: 10.6%




ANNUALIZED RETURNS

1-Yr -14.40% -11.46% -7.39% -12.14% -8.05%

3-Yr 4.89% 4.78% 5.48% 4.56% 6.88%

5-Yr 8.77% 5.09% 4.70% 3.84% 8.30%

7-Yr 12.62% 7.86% 6.53% 4.71% 7.70%

10-Yr 8.80% 5.94% 5.93% 4.73% n/a

The index performance is provided for illustrative purposes only and is not meant to depict the performance of a specific investment. Past performance is no guarantee of future results. See disclosure page for index definitions.

6 For the purposes of this paper, we are using the Dow Jones Brookfield Global Infrastructure Index to represent the listed infrastructure securities market. We would point out that Dow Jones offers two versions of this index: the one we are using, which excludes MLPs, and a composite index, which includes MLPs.

6

INVESTMENT INSIGHT


generally take a more simplistic view, using broad industry GICS (Global Industry Classification Standards) categories or using more simple revenue tests, which can be misleading for infrastructure assets (as a number of expense items are passed through to the end customer per regulatory compact and are thus irrelevant). A second key argument for utilizing the DJBGI Index is that its utility focus is on transmission and distribution, consistent with the Morgan Stanley definition (the one exception being the exclusion of contracted/regulated renewable power from the Index). A summary of the various indices are included and compared in Display 2.

As of December 31, 2015, the DJBGI index consisted of 95 securities with a market cap of $712 billion, meaningfully narrowing the scope of the universe when compared with the other indices by focusing on real assets while eliminating services-related businesses and power generation within utilities. Display 3 provides an illustration of the index.

We would note that the DJBGI Index does not entirely meet our definition of infrastructure, as a handful of universe adjustments should be made to more completely capture the available opportunity set (e.g., inclusion of select railroad companies and PPA-contracted renewable power companies, additional emerging markets companies, elimination of certain midstream companies, etc.). Accounting for these adjustments, the Morgan Stanley listed infrastructure universe totaled approximately $1.15 trillion in market capitalization across 175 securities as of December 31, 2015. Note that while we monitor the larger universe as described in the Morgan Stanley definition, a number of these companies, particularly within the emerging markets, are given a lower emphasis in our core portfolios. As these emerging markets companies mature and gain operating and regulatory history, we believe they will eventually become more stable, qualifying brownfield infrastructure investments.

DISPLAY 3Market Capitalization Growth of the Dow Jones Brookfield Global Infrastructure Index Data as of December 31, 2015

2015

$ Bi

llion

s U

SD

$0

$100

$200

$300

$400

$500

$600

$700

$800

■ Utilities ■ Energy ■ Communications � Transportation ■ Diversified

2008

Source: Morgan Stanley Investment Management, FactSet, S&P Dow Jones. The Dow Jones Brookfield Global Infrastructure Index does not Include Railroads or Renewables. All information is provided for informational purposes only.

DISPLAY 4Dow Jones Brookfield Global Infrastructure Index Annualized PerformanceData as of December 31, 2015

-20

-10

-5

0

5

10

15

Annu

aliz

ed R

etur

ns (%

)

-15

10 Year1 Year 7 Year5 Year3 Year

8.8

-14.4

12.6

8.8

4.9


7



Investment Performance of Global Infrastructure – Listed Securities as a ProxyAs mentioned above, infrastructure is favored due to a number of advantageous investment characteristics, including attractive risk-adjusted returns, diversification benefits from its low correlation with other investment classes, an ability to generate current income, and potential protection against inflation. We examine these areas in detail and compare global listed infrastructure securities vs. private infrastructure performance, in order to gauge the suitability of listed infrastructure securities as a proxy for private infrastructure.

ATTRACTIVE RISK-ADJUSTED RETURNS

To frame the return profile of infrastructure, given the fact most infrastructure companies operate in demand-inelastic environments with high levels of regulation/contracting, it is perhaps intuitive that the return

profile of infrastructure should be lower than investments in more market-based, unregulated industries but at lower risk (defined as a permanent loss of capital). This notion of lower risk is supported by historical evidence in the credit markets, where the default rates of infrastructure companies have been considerably lower than those of the broader corporate market.7 In terms of realized returns, despite a lower risk profile, historical evidence also supports a favorable result, with realized private market equity internal rates of return (IRRs) as shown in Display 5 ranging between 5 and 19%, depending on geography, industry type, leverage within the capital structure, and the level of asset maturity (brownfield at the lower end and greenfield at the higher end). Looked at prospectively, distributions of equity return expectations for infrastructure indicate most institutional investors target a range of 4 to 11% (nominal, annualized), with the vast majority in the 8-9% (nominal, annualized) range.8

From a return perspective, global listed infrastructure, as represented by the DJBGI Index, has historically met the return requirements quite well, siting within the 5-19% IRR range and meeting the current 8-9% target on a long-term basis. In a similar comparison, other infrastructure indices, due to their higher levels of equity-risk associated with them given their less pure definitions of infrastructure, have demonstrated mixed results in meeting the 8-9% target.9

Looked at on a “vintage year” basis (i.e., same starting period for investment), the return profile for listed largely matches that of private infrastructure, further supporting the argument for listed from a return perspective.10

Switching to risk, the ability to compare listed to private is more difficult. While private infrastructure investments are generally accepted to be less risky than other asset classes, listed infrastructure can be shown empirically. From the perspective of a permanent impairment of capital, it is true that listed infrastructure securities have exhibited little risk, consistent with the private markets. However, for many listed market investors, risk is equated to volatility. We would argue that volatility does not necessarily reflect risk, particularly over the short-term. In fact, we believe short-term volatility, while perceived as a negative comes with tradeoffs, namely greater liquidity and potentially the ability to purchase assets at attractive valuations relative to private markets when share prices decline. That said, while we do not agree with the perception of volatility as a risk, a comparison of infrastructure securities versus the broader equity universe

7 According to Moody’s recent report “Default and Recovery Rates for Project Finance Bank Loans, 1983-2013 Addendum”, the 10-year cumulative default rate for availability based infrastructure projects is 1.3%, lower than the 10-year cumulative default rate of 3.0% for corporate issuers rated single-A by Moody’s.8 Preqin, Preqin Investor Outlook: Alternative Assets, H2 2015.9 As demonstrated in the full index return comparison in Display 2. For a graphical depiction of the Dow Jones Brookfield Global Infrastructure Index, please refer to Display 4.10 Private Infrastructure returns are taken from Preqin Quarterly Update: Infrastructure, Q3 2015 and display the median IRR across each vintage year available (i.e., IRRs are taken from all reported funds that began in a given year and are calculated through the most recent date available, which is typically March 31, 2015 to June 30, 2015). Listed Infrastructure “vintages” are generated assuming an investment began at the start of a given year and are calculated through June 30, 2015 in order to provide a fair comparison.

DISPLAY 5

VINTAGE YEARPRIVATE INFRASTRUCTURE (PREQIN MEDIAN IRR)

LISTED INFRASTRUCTURE (DJBGI INDEX)

2006 7.9% 10.7%

2007 5.0% 8.0%

2008 9.0% 6.9%

2009 11.0% 15.8%

2010 9.2% 12.7%

2011 18.6% 12.7%

2012 11.0% 12.5%

The performance above is provided for illustrative purposes only and is not meant to depict the performance of a specific investment. Past performance is no guarantee of future results. See disclosure page for index definitions.

8

INVESTMENT INSIGHT


still reflects a lower volatility profile (while still maintaining a similar level of return). Display 6 provides a risk-return comparison across a number of common indices.

Another way to look at the level of risk is to observe the “upside/downside” capture of listed infrastructure companies relative to the broader global equity markets. As can be observed during the same five-year period in Display 6, infrastructure securities captured only 72.1% of down markets relative to global equities, while still managing to capture 77.7% of up markets in the process of outperforming by over 200 basis points annualized during that time.11

Should investors look to directly compare the volatility of listed versus private infrastructure, we would argue that the most prudent approach would be to look at each on a similar, medium to long-term time horizon. We acknowledge that listed securities are likely to demonstrate more volatility in the short-term, but again we would emphasize that the liquidity advantage allows listed investors to take advantage of short-term mispricings. We believe that looked at on a medium to long-term basis (i.e., five to ten years or beyond), listed infrastructure securities should show no more volatility than what might be observed in the private markets if valuation frequency were normalized (i.e., listed

securities only looked at on a quarterly or annual basis). Given that most institutional investors are long-term in nature, this seems to be the most appropriate comparison. It is also most consistent with the asset life duration of infrastructure.

DIVERSIFICATION BENEFITS FROM LOW CORRELATIONS WITH OTHER ASSET CLASSES

Private market investors typically look to improve the optimal risk-return tradeoff in an investment portfolio while achieving moderate returns with infrastructure investments. To help achieve this objective, private market investors have generally targeted an allocation in the range of 1-10% of their overall portfolio.12 While private market investors have generally accepted that an investment to private infrastructure can enhance their overall allocation, we contend that an allocation to listed infrastructure securities can provide similar benefits.

As shown in Display 7, we compared the efficient frontiers for an allocation containing global equities and global fixed income with one that adds global listed infrastructure to the mix. Based on historical data, our analysis indicates that the inclusion of global listed infrastructure may potentially enhance the efficient frontier, as evidenced by the fact that the portfolio which includes infrastructure generally produced higher returns relative to the portfolio that exclusively holds global equities and global fixed income at normalized levels of risk.13

In terms of correlations, similar to our comments earlier, we would caution against assuming listed and private investments are comparable over the short-term. It is true that listed

11 During the five years ending December 31, 2015, the Dow Jones Brookfield Global Infrastructure Index was up 8.8%, while the S&P Global BMI was up 6.6%.12 Preqin, Preqin Quarterly Update: Infrastructure, Q3 2015. For institutional investors with an allocation to private infrastructure, target allocations are as follows: Less than 1%: 9%, 1-4.9%: 42%, 5-9.9%: 32%, Greater than 10%: 17%.13 Efficient frontier analysis in Display 7 provided by FactSet for the 10-year period ended December 31, 2015 using monthly returns. Indices were used as a proxy for global equities (S&P Global BMI), global fixed income (Barclays Global Aggregate), and global listed infrastructure securities (Dow Jones Brookfield Global Infrastructure). The efficient frontier that excludes infrastructure set ranges for global equities and global fixed income at 25-75%. The efficient frontier that includes infrastructure set ranges for global equities and global fixed income at 25-75%, while global listed infrastructure securities was added with a range of 0-50%. Past performance is no guarantee of future results.

DISPLAY 6Five-Year Risk-Return ComparisonData as of December 31, 2015

-5

0

5

10

15

Annu

aliz

ed R

etur

ns %

200 15105

Volatility (standard deviation) %

S&P Global BMI Index

Dow Jones BrookfieldGlobal Infrastructure Index

Russell 2000 Index

S&P 500 Index

FTSE EPRA/NAREITDeveloped Index

Barclays GlobalAggregate Index

Barclays USAggregate Index

Barclays 1-3 YearGovernmentBond Index MSCI EM Index

MSCI EAFE Index

Sources: Morgan Stanley Investment Management, S&P Dow Jones, Russell, MSCI, FTSE, Barclays. All information is provided for informational purposes only.Investing involves risks including the possible loss of principal. In general, fixed income investments are subject to credit and interest rate risks. Foreign securities are subject to currency, political, economic and market risks. The risks of investing in emerging market countries are greater than investments in foreign developed countries. Investors should carefully review the risks of each asset class prior to investing.

9



infrastructure has exhibited greater correlation to the global equity markets than unlisted investments; however, these correlations spiked during the period of the “credit crisis” of 2008-2009 and have been coming down ever since.14 Moreover, while the direction of returns may have been similar between the broader equity markets and listed infrastructure, the magnitude of the return was measurably different (underscored by the upside/downside capture above). Also, with listed infrastructure securities, investors are focused on a small set of the broader equity universe, with the DJBGI Index only representing 1.7% of the overall global equity market.15 Thus, we believe listed infrastructure securities represent an adequate diversifier to an investor’s multi-asset class portfolio.

AN ABILITY TO GENERATE CURRENT INCOME

Infrastructure has long been sought for its ability to help generate long-term, stable cash flows. As a result of this ability, many institutional investors have turned to the asset class seeking a more reliable income stream,16 a consideration that has increasingly taken on greater importance given the prospective outlook and low return environment in traditional fixed income markets. Core private infrastructure funds typically distribute a healthy level of current income, something they are able to do early in the life of the funds given their focus on brownfield assets that do not need time to ramp up cash flows. Listed infrastructure strategies may also offer an attractive income component due to their advantaged cash flow profiles. However, these strategies

may not be perceived to provide the same level of income reliability due to the fact that they are equities.

A simple comparison demonstrates that infrastructure securities can provide a higher level of income compared with global equities. As of December 31, 2015, the DJBGI Index offered a dividend yield of 4.2%, comparing favorably to global equities, with the S&P Global BMI having a dividend yield of 2.6%. We would acknowledge that listed infrastructure strategies vary in their approaches, with some strategies seeking to distribute income and others being more focused on long-term total returns. Still, an investor can benefit from the underlying infrastructure assets’ ability to generate stable cash flows regardless of the strategic approach to distributions.

POTENTIAL PROTECTION AGAINST INFLATION

Infrastructure assets, whether in the public or private markets, achieve inflation protection by virtue of their remuneration structures. For regulated and contracted infrastructure, companies are allowed a “real” return on invested capital plus explicit compensation for inflation in the countries in which the assets are domiciled. For more market-based assets, while the protection is not explicit, pricing power generally moves alongside inflation (as the operator must cover inflationary costs), and a “floor” on the valuation exists in terms of replacement cost (which is in nominal, inflated monetary terms). Private market participants value this aspect of infrastructure given that the investment cash flow stream should rise alongside growing liabilities, creating a natural hedge.

While it is difficult to track private market inflation protection from a disposal perspective given the different purchase dates and holding periods of various assets, the argument for inflation protection

DISPLAY 7Historical Efficient FrontierData as of December 31, 2015

3.0

5.0

6.0

7.0

8.0

Annu

aliz

ed R

etur

n (%

)

4.0

15.0

Annualized Volatility (%)

12.06.03.0 9.0

Allocation w/ Global Listed InfrastructureAllocation ex Global Listed Infrastructure

25% Global Listed Infrastructure25% Global Equities

50% Global Fixed Income

50% Global Listed Infrastructure25% Global Equities

25% Global Fixed Income75% Global Equities

25% Global Fixed Income

25% Global Equities75% Global Fixed Income


14 As demonstrated in Display 8, the three year correlation of the Dow Jones Brookfield Global Infrastructure Index relative to the S&P Global BMI spiked as high as 0.95 during the credit crisis, but has since come down to 0.80 as of December 31, 2015.15 Data as of December 31, 2015 using the S&P Global BMI as a proxy for global equities.16 Preqin, Preqin Investor Outlook: Alternative Assets, H2 2015.

10

INVESTMENT INSIGHT


is generally accepted given the types of assets owned. We would note that given listed infrastructure companies own similar assets, observing the behavior of listed infrastructure securities should also reinforce this point for private infrastructure. If we consider listed infrastructure performance versus the broader global equity markets, it is clear that valuations at least historically have held up better in high inflationary periods, supporting the argument that listed infrastructure securities provides some level of protection against a rise in inflation.17

In conclusion, while difficult to make exact comparisons between listed and private market infrastructure, we believe an analysis of both over the medium to long-term demonstrates that listed infrastructure securities can provide much of the same financial benefits investors are looking for when seeking infrastructure investments.

Other Considerations – Listed Versus Private InfrastructureWhile we believe this argument makes a compelling case for listed infrastructure securities to serve as a proxy for private infrastructure from a financial perspective, we acknowledge there are other considerations when selecting between the two forms of exposure as well. We address a number of the other considerations in this section.

• ACCESSIBILITY AT AN ACCEPTABLE RETURN – (ADVANTAGE: LISTED): One of the primary concerns facing private infrastructure strategies has been rising valuations as investors have flooded these funds with capital. Dry powder (committed capital yet to be invested) among these funds recently reached a record $115B, which is likely to grow further with 155 funds in the market currently seeking to raise $96B in aggregate.18 While there seems to be no shortage of funds willing to raise

17 Data in Display 9 provided by S&P Dow Jones from January 2003 through March 2015.1 8 P r e q i n , P r e q i n Q u a r t e r ly U p d a t e : Infrastructure, Q3 2015.

DISPLAY 836-Month Rolling CorrelationData as of December 31, 2015

0.4

0.5

0.6

0.7

0.8

0.9

1.0

Corr

elat

ion

2009 2015200820072006 20142010 20132011 2012

Global Listed Infrastructure vs. Global Equities

Sources: Global Listed Infrastructure—Dow Jones Brookfield Global Infrastructure Index; Global Equity—S&P Global BMI Index. Based on 36-month rolling correlation and provided in USD terms. Past performance is no guarantee of future results.

DISPLAY 9Average Monthly PerformanceLow Inflation vs. High Inflation

0.0

0.2

0.6

0.8

1.0

1.2

1.4

0.4

Aver

age

Mon

thly

Ret

urn

(%)

Dow Jones BrookfieldGlobal Infrastructure Index

S&P Global BMI

1.24

0.70

1.041.13

■ Low Inflation ■ High Inflation


11



capital, the need to deploy increasing levels of capital is leading to greater competition over deals, which have steadily risen in size. Faced with the prospect of overpaying for deals or waiting for dry powder levels to come down, investors can use listed infrastructure to more immediately gain exposure to the asset class through a large investable universe rather than having to compete in an overcrowded marketplace. Moreover, this relatively small segment of the broader equity market still lacks robust numbers of investors who are focused on the benefits long-term exposure to infrastructure can provide. As a consequence, listed strategies utilizing an appropriate investment approach can be patient in waiting to take advantage of market dislocations to access infrastructure assets at discounts to their underlying value, potentially providing returns in excess of that available in the private market for the same types of assets. Given the level of sophistication of investors in the private markets, in combination with the level of dry powder that needs to be put to work, the likelihood of significant market mispricings/dislocations in the private market is anticipated to be low.

• ASSET DIVERSIFICATION – (ADVANTAGE: LISTED): Beyond the accepted diversification benefits of including real assets in a multi-asset class portfolio, listed infrastructure allows investors to diversify by geography and asset type. This diversification eliminates single-asset risk that exists in private strategies while also ensuring investors are exposed to the full spectrum of infrastructure assets and not overly concentrated in any one area.

• ASSET DUE DILIGENCE – (ADVANTAGE: PRIVATE): An advantage of private infrastructure strategies is that they often invest in individual assets, rather

than companies that operate a suite of assets. In combination with this and similar to most private strategies, due diligence can be extensive as investors are provided full access to a project company’s books and records following the signing of a confidentiality agreement. This allows the investor to better understand the asset-level economics through proper due diligence. This greater disclosure is partly mitigated by the concentration of the investments, in contrast to a more diversified portfolio, as mentioned above.

• LIQUIDITY – (ADVANTAGE: LISTED): A drawback to private strategies is that they typically include lock-ups of several years that restrict an investor’s exit opportunities. Listed strategies offer daily liquidity, which not only allows for the withdrawal of capital on an investor’s timeframe (rather than what’s dictated by the fund) but also provides investors with the ability to fully invest today rather than being dependent on the ability of private strategies to deploy capital. Once invested, this liquidity provides investors the opportunity to tactically increase or decrease their allocations based on market conditions.

• LOWER FEES – (ADVANTAGE: LISTED): Listed strategies typically charge management fees that are less than 1%.19 Private infrastructure, on the other hand, has generally followed the private equity model, charging a higher management fee along with a performance fee that can meaningfully reduce expected net returns.

A Final Comment on Investing StyleGiven the similarities in return profile to private infrastructure, in addition to the other potential advantages of listed infrastructure discussed previously, we believe listed infrastructure securities represents a credible proxy for private infrastructure. However, in order to

maximize the potential benefits of investing in the listed infrastructure markets, Morgan Stanley believes investors should carefully consider investing style as well. That is, to effectively serve as a proxy for private infrastructure, listed infrastructure strategies must go beyond qualifying an appropriate universe of securities. We believe these strategies should utilize an investment approach that embraces three key principles: (1) focus on a lower risk profile within the overall universe, (2) implement a bottom-up based process, and (3) maintain a long-term time horizon. We discuss each principle in greater detail in this section.

1. FOCUS ON A LOWER RISK PROFILE. The first component of a proper public markets approach requires considering not just the types of assets infrastructure investors are seeking, but also why they even seek those assets in the first place. Taking a step back, we should remember that interest in private infrastructure began in earnest as institutional investors needed to find new ways to match liabilities—this occurred as interest rates came down, prohibiting them from producing a sufficient return entirely through fixed income. If we consider what the liabilities of most institutional investors look like, they are very long-dated and typically growing at an inflationary rate. From that perspective, it is easy to understand how infrastructure has risen in popularity, as we know infrastructure assets can produce a more steady, stable return over time, long enough to match the types of liabilities formerly matched by fixed income investments. With that in mind, a listed infrastructure strategy should seek to provide the same type of return profile. We previously demonstrated that listed and private infrastructure have achieved similar rates of returns, with listed infrastructure volatility also being meaningfully lower than what investors typically have seen from equities over long-term time periods. Narrowing the

19 According to Morningstar, approximately 90% of US 40 Act Mutual Funds charged management fees of 1% or less. Data as of December 31, 2015.

12

INVESTMENT INSIGHT


investable universe can get a strategy part of the way there, but within the universe of infrastructure securities, we believe these strategies should seek companies that have an even lower risk profile, with a focus on cash flow stability.

2. IMPLEMENT A BOTTOM-UP BASED PROCESS. The second principle suggests a bottom-up approach is more appropriate than one that relies on top-down macro bets. Investors looking to de-risk their returns over a long period of time may be able do so by seeking investment opportunities that have the potential to work in both weak and strong economic environments, rather than attempting to “call” the bottom or top of economic cycles or broad macro trends. While we would not diminish the importance of macro considerations—traffic trends will have an impact on transportation companies, commodity prices are important to consider in the context of energy infrastructure—we believe that a bottom-up analysis of infrastructure securities is the best method for investors to recognize value in these companies. Just as private infrastructure strategies are advantaged in that they can conduct single-asset due diligence, listed strategies should seek as great a level of understanding of these same assets the companies they invest in own and operate. Taken a step further, this can present listed strategies with opportunities as equity securities may frequently misprice infrastructure assets over the short-term, often due to investor sentiment related to macro considerations, allowing investors the potential to access these assets at discounts to their intrinsic value.

3. MAINTAIN A LONG-TERM TIME HORIZON. The third and final aspect of this investment approach matches investment strategy with the useful lives of the underlying assets. Infrastructure assets are typically long-lived, with generally more stable cash flows and stable pricing power. Given this, the underlying asset value should not change materially

over short periods of time, absent some significant structural change (e.g., change in regulatory structure or “stranding” of assets). For listed infrastructure investors, this means portfolio positioning should not change meaningfully absent some large move in the share price as near-term information flows and macro data points have no meaningful impact on underlying asset value. A more tactical trading strategy for listed infrastructure securities only introduces unnecessary “equity risk,” and given that underlying asset value does not change, such a trading strategy removes the connection between the potential benefits of infrastructure and the actual asset exposure. Said another way, if short-term share price movements of infrastructure companies are frequently used for tactical trading, the investor is looking to capitalize on near-term information flow, not underlying infrastructure asset value (with all of its benefits). Trading on near-term information flow can be done in any equity sector, and thus the value of owning infrastructure assets is lost. A more appropriate approach is to take a long-term, asset-based view, which should allow the investor to benefit from the structural characteristics of infrastructure assets over the medium to long-term.

Conclusion: Listed is the New AlternativeIn summary, the Global Listed Real Assets Team at Morgan Stanley Investment Management believes investors can achieve core infrastructure exposure through listed securities. Private markets strategies attracted the majority of flows into the asset class initially, but we anticipate listed strategies will gain acceptance as a complement and/or alternative over time as they become better understood by investors. Within real assets, there is precedent for this lag in private to public markets acceptance. Private real estate strategies grew in popularity prior to the development of listed real estate strategies in the mid-nineties, but our experience saw early skepticism gradually turn to

widespread acceptance of the fact that listed securities can be used as an effective proxy. Today, listed securities continue to be used as a common complement to or proxy for core, direct real estate exposure.

Infrastructure will likely continue to be an area of focus for investors should recent trends hold. Many investors continue to increase their target allocations to the asset class, yet even with ample amounts of capital being raised, some investors remain underweight their allocations.20 With concern over core options in the private markets and the length of time it may take for capital to be deployed, we anticipate more investors will seek out listed strategies. We believe those investors that do turn to listed securities will benefit from gaining immediate exposure through strategies that can effectively serve as a proxy for private infrastructure. These strategies may continue to provide investors with attractive risk-adjusted returns that offer enhanced diversification benefits, current income, and a potential inflation hedge. We encourage investors to better understand the landscape of infrastructure alternatives available to them, as listed strategies may be able to achieve the core infrastructure exposure investors desire.

Investors can generate core exposure to infrastructure in a cost-effective manner by investing in equity securities of publicly listed companies. Based on the premise that long-term performance of infrastructure securities will be most highly correlated with the underlying value of their assets, investors utilizing a bottom-up driven investment approach should be able to access these securities at valuations comparable or superior to direct investments. In doing so, listed infrastructure has the ability to provide the benefits mentioned earlier, but with the added advantages of daily liquidity and meaningfully lower fees. We believe a listed, public markets strategy bears the consideration of those with infrastructure allocations to fill.

20 Preqin, Preqin Quarterly Update: Infrastructure, Q3 2015.

13



This material is for Professional Clients use only, except in the U.S. where the material may be redistributed or used with the general public.The views and opinions are those of the author as of the date of publication and are subject to change at any time due to market or economic conditions and may not necessarily come to pass. Furthermore, the views will not be updated or otherwise revised to reflect information that subsequently becomes available or circumstances existing, or changes occurring, after the date of publication. The views expressed do not reflect the opinions of all portfolio managers at Morgan Stanley Investment Management (MSIM) or the views of the firm as a whole, and may not be reflected in all the strategies and products that the Firm offers. Certain information herein is based on data obtained from third party sources believed to be reliable. However, we have not verified this information, and we make no representations whatsoever as to its accuracy or completeness All information provided has been prepared solely for information purposes and does not constitute an offer or a recommendation to buy or sell any particular security or to adopt any specific investment strategy. The information herein has not been based on a consideration of any individual investor circumstances and is not investment advice, nor should it be construed in any way as tax, accounting, legal or regulatory advice. To that end, investors should seek independent legal and financial advice, including advice as to tax consequences, before making any investment decision.

INDEX DEFINITIONS The indices shown in this report are not meant to depict the performance of any specific investment and the indices shown do not include any expenses, fees or sales charges, which would lower performance. The indices shown are unmanaged and should not be considered an investment. It is not possible to invest directly in an index. Dow Jones Brookfield Global Infrastructure Index is a free float-adjusted market capitalization weighted index that measures the stock performance of companies that exhibit strong infrastructure characteristics. The Index intends to measure all sectors of the infrastructure market. The Standard & Poor’s Global BMI Index is a broad market index designed to capture exposure to equities in all countries in the world that meet minimum size and liquidity requirements. The index includes developed and emerging market countries. Barclays Global Aggregate Index provides a broad-based measure of the global investment grade fixed-rate debt markets. Total Returns shown in unhedged USD. The indexes are unmanaged and returns do not include any sales charges or fees. Such costs would lower performance. It is not possible to invest directly in an index. The S&P 500 Total Return Index is an index that consists of 500 stocks chosen for market size, liquidity and industry group representation. The S&P Index is a market value weighted index with each stock’s weight proportionate to its market value. The S&P Index is one of the most widely used benchmarks of U.S. equity performance. The performance of the S&P Index does not account for any management fees, incentive compensation, commissions or other expenses that would be incurred pursuing such strategy. Total return provides investors with a price-plus-gross cash dividend return. Gross cash dividends are applied on the ex-date of the dividend. The Russell 2000® Index is an index that measures the performance of the 2,000 smallest companies in the Russell 3000 Index. The FTSE EPRA/NAREIT Developed Index (formerly named FTSE EPRA/NAREIT Global Real Estate Index) is a global market capitalization weighted index composed of listed real estate securities in the North American, European and Asian real estate markets. The MSCI Emerging Markets Index (MSCI EM) is a free float-adjusted market capitalization weighted index that is designed to measure equity market performance of emerging markets. The MSCI EAFE Index (Europe, Australasia, Far East) is a free float-adjusted market capitalization index that is designed to measure the international equity market performance of developed markets, excluding the US & Canada. The term “free float” represents the portion of shares outstanding that are deemed to be available for purchase in the public equity markets by investors. The MSCI EAFE Index currently consists of 21 developed market country indices. The performance of the Index is listed in U.S. dollars and assumes reinvestment of net dividends. The Barclays 1-3 Year U.S. Government Bond Index is a sub-index of the Barclays U.S. Government Bond Index and is comprised of Agency and Treasury securities with maturities of one to three years. The Barclays US Aggregate Bond Index is a market capitalization-weighted index, meaning the securities in the index are weighted according to the market size of each bond type. Most U.S. traded investment grade bonds are represented.

Standard Deviation measures how widely individual performance returns, within a performance series, are dispersed from the average or mean value. Internal Rate of Return represents the annualized effective compounded return rate of an investment. Specifically, IRR is the discount rate that equates the present value of future cash flows with the initial cost of the investment.

RISK WARNINGS There is no assurance that a portfolio will achieve its investment objective. Portfolios are subject to market risk, which is the possibility that the market values of securities owned by the portfolio will decline. Accordingly, you can lose money investing in this strategy. Please be aware that this strategy may be subject to certain additional risks. Companies within the infrastructure industry are subject to a variety of factors that may adversely affect their business or operations, including high interest, leverage and regulatory costs, difficulty raising capital, the effect of an economic slowdown or recession and surplus capacity, and increased competition. Other risks include technological innovation, significant changes in the number of end-users, an increasing deregulatory environment, natural and environmental risks, and terrorist attacks. In general, equity securities’ values also fluctuate in response to activities specific to a company. Investments in foreign markets entail special risks such as currency, political, economic, and market risks. Investments in small- and medium-capitalization companies tend to be more volatile and less liquid than those of larger, more established, companies. The risks of investing in emerging market countries are greater than risks associated with investments in foreign developed markets. Non-diversified portfolios often invest in a more limited number of issuers. As such, changes in the financial condition or market value of a single issuer may cause greater volatility. Illiquid securities may be more difficult to sell and value than publicly traded securities (liquidity risk).Charts and graphs provided herein are for illustrative purposes only. Past performance is no guarantee of future results. This communication is only intended for and will be only distributed to persons resident in jurisdictions where such distribution or availability would not be contrary to local laws or regulations.There is no guarantee that any investment strategy will work under all market conditions, and each investor should evaluate their ability to invest for the long-term, especially during periods of downturn in the market. Prior to investing, investors should carefully read the relevant offering document(s). EMEA: This communication was issued and approved in the UK by Morgan Stanley Investment Management Limited, 25 Cabot Square, Canary Wharf, London E14 4QA, authorized and regulated by the Financial Conduct Authority, for distribution to Professional Clients or Eligible Counterparties only and must not be relied upon or acted upon by Retail Clients (each as defined in the UK Financial Conduct Authority’s rules). Financial intermediaries are required to satisfy themselves that the information in this document is suitable for any person to whom they provide this document in view of that person’s circumstances and purpose. MSIM shall not be liable for, and accepts no liability for, the use or misuse of this document by any such financial intermediary. If such a person considers an investment she/he should always ensure that she/he has satisfied herself/himself that she/he has been properly advised by that financial intermediary about the suitability of an investment. U.S.:Morgan Stanley Investment Management does not provide tax advice. The tax information contained herein is general and is not exhaustive by nature. It was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer under U.S. federal tax laws. Federal and state tax laws are complex and constantly changing. You should always consult your own legal or tax professional for information concerning your individual situation.A separately managed account may not be suitable for all investors. Separate accounts managed according to the Strategy include a number of securities and will not necessarily track the performance of any index. Please consider the investment objectives, risks and fees of the Strategy carefully before investing. A minimum asset level is required. For important information about the investment manager, please refer to Form ADV Part 2.

14

INVESTMENT INSIGHT


Please consider the investment objectives, risks, charges and expenses of the funds carefully before investing. The prospectuses contain this and other information about the funds. To obtain a prospectus please download one at morganstanley.com/im or call 1-800-548-7786. Please read the prospectus carefully before investing.Hong Kong: This document has been issued by Morgan Stanley Asia Limited for use in Hong Kong and shall only be made available to “professional investors” as defined under the Securities and Futures Ordinance of Hong Kong (Cap 571). The contents of this document have not been reviewed nor approved by any regulatory authority including the Securities and Futures Commission in Hong Kong. Accordingly, save where an exemption is available under the relevant law, this document shall not be issued, circulated, distributed, directed at, or made available to, the public in Hong Kong. Singapore: This document should not be considered to be the subject of an invitation for subscription or purchase, whether directly or indirectly, to the public or any member of the public in Singapore other than (i) to an institutional investor under section 304 of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”), (ii) to a “relevant person” (which includes an accredited investor) pursuant to section 305 of the SFA, and such distribution is in accordance with the conditions specified in section 305 of the SFA; or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.

Australia: This publication is disseminated in Australia by Morgan Stanley Investment Management (Australia) Pty Limited ACN: 122040037, AFSL No. 314182, which accept responsibility for its contents. This publication, and any access to it, is intended only for “wholesale clients” within the meaning of the Australian Corporations Act.Morgan Stanley Distr ibution, Inc . serves as the distr ibutor for Morgan Stanley funds.NOT FDIC INSURED | OFFER NO BANK GUARANTEE | MAY LOSE VALUE | NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY | NOT A DEPOSIT

15



© 2016 Morgan Stanley. All rights reserved. Morgan Stanley Distribution, Inc. 1402231-A Exp. 22/01/2017 8755904_KC_1116

Explore our new site at www.morganstanley.com/im

INVESTMENT INSIGHT

Documents

The ase for a Strategic Allocation to Gloal isted ......• Fixed Orbit Satellite Operators • Airports • Toll Roads • Ports • Railroads • Health Services Facilities • Educational